Illumina Stock Falls As Roche Says Buyout Talks Fail

Shares of genetics firm Illumina (ILMN) tumbled 9% in early trading Monday after Roche's (RHHBY) chairman said it was "off the table" as a buyout target. Meanwhile, Illumina made another buyout of its own.

Over the weekend, Swiss newspaper SonntagsZeitung published an interview with Franz Humer in which the chairman said merger negotiations had broken down over price. Illumina turned down Roche's $6.8 billion bid in April, but last month its stock jumped on rumors that a new deal had been made. But Humer said Illumina's leaders "were not willing to abandon the totally unrealistic price they were asking for."

In an email to clients, ISI Group analyst Ross Muken said this wasn't a big surprise, as Roche isn't normally willing to put down big money for market leaders. "That being said, we do not believes this precludes Roche from returning to Illumina as a targeted asset in the future and does not diminish its attractiveness as a potential M&A target (it merely discounts Roche's intent to purchase ILMN medium term)," he added.

Early Monday, Illumina announced it's agreed to buy Verinata Health, which makes tests for detecting chromosomal abnormalities in fetuses. Illumina agreed to pay $300 million upfront plus $100 million in milestone payments through 2015 as the company continues to develop new technology.

In the press release, Illumina's diagnostics chief Greg Heath said the buyout will work nicely with Illumina's September acquisition of BlueGnome, a genetics screening company that served the in vitro fertilization market. The combo will "enable Illumina to provide a compelling portfolio of offerings across the spectrum of reproductive health," he said.

Muken wrote that the technology has clear merits, but "capital returns may prove challenging, given investment required in building out commercial organization and reasonable likelihood of pricing pressure via competition."

Before the drop, Illumina held a highest-possible IBD Composite Rating of 99. Shares hit a 16-month high of 57 on Dec. 20, and the stock rose 90% in 2012. The stock was trading near 50 early Monday.

Shares of genetics firm Illumina (ILMN) tumbled 9% in early trading Monday after Roche's (RHHBY) chairman said it was "off the table" as a buyout target. Meanwhile, Illumina made another buyout of its own.

Over the weekend, Swiss newspaper SonntagsZeitung published an interview with Franz Humer in which the chairman said merger negotiations had broken down over price. Illumina turned down Roche's $6.8 billion bid in April, but last month its stock jumped on rumors that a new deal had been made. But Humer said Illumina's leaders "were not willing to abandon the totally unrealistic price they were asking for."

In an email to clients, ISI Group analyst Ross Muken said this wasn't a big surprise, as Roche isn't normally willing to put down big money for market leaders. "That being said, we do not believes this precludes Roche from returning to Illumina as a targeted asset in the future and does not diminish its attractiveness as a potential M&A target (it merely discounts Roche's intent to purchase ILMN medium term)," he added.

Early Monday, Illumina announced it's agreed to buy Verinata Health, which makes tests for detecting chromosomal abnormalities in fetuses. Illumina agreed to pay $300 million upfront plus $100 million in milestone payments through 2015 as the company continues to develop new technology.

In the press release, Illumina's diagnostics chief Greg Heath said the buyout will work nicely with Illumina's September acquisition of BlueGnome, a genetics screening company that served the in vitro fertilization market. The combo will "enable Illumina to provide a compelling portfolio of offerings across the spectrum of reproductive health," he said.

Muken wrote that the technology has clear merits, but "capital returns may prove challenging, given investment required in building out commercial organization and reasonable likelihood of pricing pressure via competition."

Before the drop, Illumina held a highest-possible IBD Composite Rating of 99. Shares hit a 16-month high of 57 on Dec. 20, and the stock rose 90% in 2012. The stock was trading near 50 early Monday.

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